Centum builds war chest for real estate buyouts

Monday, September 27, 2010 0:00

By MOSES MICHIRA |

Centum Chief Executive James Mworia. Photo/FILE

Centum Investment Company has unveiled its multi-billion shilling fundraising plan that will see the firm sell shares it owns in a number of listed firms and hold back payment of dividends until 2014 as it seeks to go big on the property market.

Centum said that it is looking at reducing its current investment at the stock market from 41 per cent of its current portfolio worth Sh4 billion to about 30 per cent by exiting counters at the Nairobi Stock Exchange (NSE) and boosting its unquoted investments.

The investment firm also revealed that its has an unused debt facility of Sh2 billion--pushing its acquisition warchest to nearly Sh3 billion.

The firm’s managing director, Mr James Mworia, told shareholders at the annual meet last Friday that the investment firm will deepen its strategy of re-investing profits into the business as its seeks new buy-out deals.

The strategy of reinvesting profits will last till 2014.

“We are cutting back on investments in listed companies to raise funds which would be used to co-finance new investments in the property market,” added Mr Mworia.

Already, the firm has created a new department--Real Estate and Infrastructure division, which will be headed by Harvard Business School graduate Lawrence Irungu whose brief is to scour for buyout opportunities in real estate and infrastructure assets across East Africa.

Centum is investing Sh2.5 billion this year in two prime lands in Uganda and Kenya and the construction of an office block in Nairobi’s Central Business District--representing a quarter of its current assets.

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The firm is eyeing infrastructure projects mostly in the power and oil sector that are currently generating healthy returns on increased demand for electricity and fuel products.

It is also looking for land of between 100 and 500 acres within urban centres in Uganda and Kenya, hoping to reap outsized returns from building homes for the regions widening middle class, which is egging demand and prices upwards.

The real estate assets will also reduced the influence of stock market cycles and dividend payouts on Centum’s profitability, which was reflected its half year earnings to September 2009 when profits dropped from Sh407 million to Sh114 million on reduced investment incomes.

Its investments income, which is driven by dividends and sales of shares, remained low as the firm sold fewer shares in the first half of 2009 compared to the same half in 2008, when rising share prices presented perfect exit opportunities.

“The real estate division will help to further de-link Centum’s returns from market returns to which it current investment portfolio are highly correlated,” said Mworia.

Kenya’s property market had been red hot in the three years to 2008 on increased demand and speculation, with Hass Consult, a property development firm, indicating that home prices rose 120 per cent over the period especially in up-market zones.

But since last year, rental income and home prices in the high end of the market has remained flat as investors balk at paying for overpriced apartments.

However, the lower and middle segments of the property market from which developers have shied away from is faced with a shortage.

Annual demand for houses is currently estimated at 150,000 units whereas the market can only supply 30,000 units.

This has, set the stage for a rally in home prices in the mid segment, drawing in institutional developers such as National Housing Corporation and Centum keen on mega-housing projects.

A similar market structure is emerging in Uganda, and is expected to escalate as the country reaps from oil production windfall.

Centum is now looking at the unquoted investments as the next frontier for growth, egged by the higher returns it generated this year compared to equities.

The unquoted investments generated a return of 61 per cent in the year to March while equities made a return of 50 per cent.